Nikkei stands for Nikkei 225 Stock Average, which is the leading and most respected stock index in Japan.

This index uses price weighting and covers 225 of Japan’s leading blue-chip companies listed on the Tokyo Stock Exchange. Nikkei is equivalent to the Dow Jones Industrial Average (DJIA) in the United States.

Well, to get to know more about what the Nikkei 225 is, starting from how it works, the main sectors and companies in it, to its global significance, see the following review.

What is Nikkei 225?

Formerly known as the Nikkei Dow Jones Stock Average (from 1975 to 1985), the Nikkei 225 index is now named after the Nihon Keizai Shimbun or Japanese Economic Newspaper, better known as the Nikkei, which sponsors the calculation of the index.

The index has been calculated since September 1950, with retroactive results from May 1949. Some of the well-known companies in the Nikkei index include Canon, Sony, and Toyota. It is the oldest stock index in Asia.

The Nikkei was founded as part of the effort to rebuild and industrialize Japan after World War II.

The stocks in the index are ranked by share price, rather than by market capitalization as in most other indexes.

The valuation is done in Japanese yen. The composition of the Nikkei is reviewed every September and any necessary changes are made in October.

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How the Nikkei 225 Works

The Nikkei 225 index is a price-weighted index, meaning that the value of the index is determined based on the stock prices of its components, not market capitalization.

Each stock in the index has a different impact depending on its price per share. The index is calculated using the following formula:

AdjPrice = Price × AdjFactor

Then, the index is calculated using the formula:

Index = ?AdjPrice / Divisor

Description:

• Price is the stock price of a component.
• AdjFactor is the price adjustment factor.
• AdjPrice is the adjusted price after being multiplied by the adjustment factor.

With the calculation method above, a higher change in stock price will have a greater impact on the movement of the index compared to stocks with lower prices.

On the other hand, the Nikkei 225 Index consists of 225 large companies selected from various industrial sectors, including technology, automotive, finance, and others.

The selection of these companies is done by considering factors such as market capitalization, liquidity, and company reputation.

Key Sectors and Companies in the Nikkei 225

The Nikkei 225 includes a number of large companies that play a significant role in the movement of the index. Two of them are Toyota Motor Corporation and Sony Corporation.

Toyota, as one of the largest car manufacturers in the world, not only makes a major contribution to the automotive industry, but also influences the Japanese manufacturing sector as a whole.

Toyota’s success and innovation in electric and hybrid vehicle technology also influences market perception of the Japanese automotive industry.

Meanwhile, Sony as a technology and entertainment giant plays an important role in the electronics and media sectors.

Sony’s iconic products, such as the PlayStation game console and consumer electronics devices, contribute greatly to the company’s revenue and, directly, to the index value.

Fluctuations in the stock prices of these two companies can have a significant impact on the Nikkei 225 due to the weight of their stock prices.

As reviewed earlier, the Nikkei 225 consists of companies from various sectors, including technology, automotive, finance, pharmaceuticals, and consumer goods. The diversity of these sectors reflects Japan’s broad and complex economy.

By including companies from a variety of industries, the index provides a more comprehensive picture of the country’s economic health.

For example, the technology sector includes innovative companies that focus on software and hardware, while the automotive sector includes carmakers that contribute to Japan’s exports.

The financial and banking sector also plays a significant role in supporting economic growth, while the consumer goods sector includes products that people use every day.

Thus, the diversity of sectors in the Nikkei 225 not only shows the variety of industries in Japan, but also shows the dynamism and resilience of the Japanese economy in the global market.

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Global Significance of Nikkei 225

The Nikkei 225 plays an important role in the global context, comparable to other major indices such as the Dow Jones Industrial Average in the US.

As one of the leading stock indices in Asia, the Nikkei not only reflects the health of the Japanese economy but also provides an indication of the global market.

The performance of the Nikkei is often monitored by international investors because its changes can affect market sentiment around the world.

One of the factors that affects the Nikkei is the condition of the US stock market. As the world’s largest economy, the movement of indices such as the Dow Jones can have a domino effect on the Nikkei.

When the US market rises, it is usually followed by increased confidence in the Japanese market and vice versa.

In addition, global events such as financial crises, changes in monetary policy, and geopolitical tensions can have a direct impact on the performance of the Nikkei because investors often react to uncertainty in the international market.

Domestic factors also play an important role, including Japanese government policies, Bank of Japan decisions on interest rates, and domestic economic conditions.

When the Bank of Japan launches a stimulus program or an accommodative monetary policy, this can boost growth in the Nikkei and create a positive impact on the global market.

Thus, the Nikkei 225 is not only a reflection of the Japanese market, but also serves as an important barometer for global investors, with the ability to influence and be influenced by international economic and market dynamics.

Historical Highlights and Economic Reflections

The Nikkei 225 has deviated sharply from the classic stock average model of steady exponential growth.

During Japan’s asset price bubble, the index hit a record high on Dec. 29, 1989, with an intraday price of 38,957.44, before closing at 38,915.87, growing sixfold in the decade.

However, the index has since lost nearly all of those gains, hitting a post-bubble low of 6,994.90 on Oct. 28, 2008—82% below its peak nearly 19 years earlier.

The 1989 high stood for 34 years, until it was surpassed in 2024. On March 15, 2011, two business days after the Great East Japan Earthquake, the index fell more than 10% to close at 8,605.15, a loss of 1,015 points.

The index continued to decline throughout 2011, hitting a low of 8,160.01 on November 25, its lowest close since March 31, 2009.

The Nikkei fell more than 17% in 2011, closing at 8,455.35, its lowest annual close in nearly three decades, since the index closed at 8,016.70 in 1982.

The Nikkei began 2013 near 10,600, peaking at 15,942 in May. However, soon after, the index plunged almost 10% before recovering, making it the most volatile stock market index among developed markets.

In 2015, the index managed to break through the 20,000 mark, posting a gain of more than 10,000 in two years, making it one of the fastest-growing stock market indexes in the world.

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However, in 2018, the index growth has been more moderate at around 22,000. There are concerns that the increase since 2013 is the result of purchases by the Bank of Japan (BOJ).

From early 2013 to late 2017, the BOJ controlled about 75% of all Japanese Exchange Traded Funds (ETFs) and was a top-ten shareholder in 90% of the Nikkei 225 components.

On February 15, 2021, the Nikkei average surpassed 30,000, its highest level in 30 years, as a result of the Bank of Japan’s monetary stimulus and asset purchase programs to mitigate the financial impact of the COVID-19 pandemic.

On February 22, 2024, the Nikkei hit an intraday high of 39,156.97 and closed at 39,098.68, finally surpassing its 1989 record high, a major milestone since the Japanese asset price bubble.

On March 4, 2024, the index surpassed 40,000 (both intraday and closing) for the first time in its history.

On August 5, 2024, amid a global stock market downturn, the Nikkei fell more than 4,200 points, surpassing its previous biggest drop on Black Monday in 1987.

The following day, the index rebounded with a gain of more than 3,200 points, its biggest single-day gain in history.

The peaks and troughs experienced by the Nikkei 225 reflect not only the condition of the stock market, but also the overall condition of the Japanese economy.

When the index rises, it often indicates investor confidence and strong economic growth. Conversely, a decline in the index often reflects economic uncertainty and structural challenges.

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Conclusion

So, that was an interesting discussion about Getting to Know the Nikkei 225: Japan’s Leading Stock Market Index that you can read in full at the Crypto Academy at INDODAX Academy.

In conclusion, the Nikkei 225 plays an important role in the global market as one of the leading stock indices in Asia. This index not only reflects the health of the Japanese economy but also provides an important picture for international investors.

Tracking the movement of the Nikkei 225 provides valuable insights into the direction and stability of the Japanese economy, which will help investors make better decisions in a dynamic market.

With the growth and fluctuations that occur in this index, investors can use the data and emerging trends to plan their investment strategies.

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FAQ

1. What is Nikkei 225?
Nikkei 225 is the main stock index in Japan that reflects 225 large companies on the Tokyo Stock Exchange.

2. How does the Nikkei 225 calculation work?
Nikkei 225 is calculated based on share price, not market capitalization, so price movements per share affect the index value.

3. What sectors are included in Nikkei 225?
Sectors in Nikkei 225 include technology, automotive, financial, and retail, which reflect the Japanese economy as a whole.

4. Can Nikkei 225 be purchased directly?
No, but investors can track it through ETFs and other derivatives.

5.Why is the Nikkei 225 important to global investors?
The Nikkei 225 provides insight into the Japanese economy and its influence on international markets.